Infamous short-seller Carson Block is long something

Muddy Waters Research founder Carson Block, one of the world's
most infamous short-sellers, revealed his first long stock
position on
Bloomberg TV's "Market Makers" with Stephanie Ruhle and Eric
Schatzker.

Block – who is known for targeting Chinese companies he
believes are frauds – told Bloomberg that he likes
a holding company traded in France called
Bollore.

"And the reason that we're long Bollore it's actually really the
mirror image of a lot of our shorts in that it has a very opaque
corporate structure, but in this case the opacity actually has
created a huge arbitrage opportunity. So people don't --
investors don't understand really what this corporate structure
does. And it looks like Bollore has about 2.5 billion shares
outstanding," Block told Bloomberg TV.

So this is less about investing in a business, and more about
trading an apparent discrepancy in the market.

He continued: "Because of this
corporate structure, there's so much circular ownership that,
effectively, you have all of this treasury stock that and that's
not being excluded under accounting rules excluded. So the true
shares outstanding we estimate are really about 1.1 billion. So
that means that the public, instead of owning about 25 percent of
this company, actually owns about 52, 53 percent of it. So if you
look at it on a net asset value per share basis, which you would
do with a holding company that effectively more than doubles what
the net asset value per share is. So this is something that we
think is worth at least 850 euro."

The stock jumped from around
$4.30 to as high as $4.56 on the news.

Google Finance

Here's the full transcript courtesy Bloomberg Television:

ERIK SCHATZKER, BLOOMBERG: When Carson Block speaks, investors
listen. From Sino Forest, to Olam International to American
Tower, Carson has made headline after headline with his
courageous and often controversial calls. He made his reputation
as a short seller with a talent for forensic research. Now he's
right back here on Bloomberg Television to reveal his latest
position. Carson, let's get right down to it. What are we talking
about?

CARSON BLOCK, FOUNDER, MUDDY WATERS: All right. Well the first
thing to get out of the way is this is a long.

STEPHANIE RUHLE, BLOOMBERG NEWS: What?

BLOCK: Yes.

RUHLE: Wait. Carson Block likes something?

BLOCK: I know. Say it ain't so, but….

RUHLE: You're a new man. Fatherhood has changed him.

SCHATZKER: Well right. When you told us that you are not a ninja
assassin, you are not a ninja assassin.

BLOCK: No. I love everything. It's -- and we are long a company
traded in France called Bollore.

RUHLE: Bollore.

BLOCK: Bollore. It's a holding company. And the reason that we're
long Bollore it's actually really the mirror image of a lot of
our shorts in that it has a very opaque corporate structure, but
in this case the opacity actually has created a huge arbitrage
opportunity. So people don't -- investors don't understand really
what this corporate structure does. And it looks like Bollore has
about 2.5 billion shares outstanding.

Because of this corporate structure, there's so much circular
ownership that, effectively, you have all of this treasury stock
that and that's not being excluded under accounting rules
excluded. So the true shares outstanding we estimate are really
about 1.1 billion. So that means that the public, instead of
owning about 25 percent of this company, actually owns about 52,
53 percent of it. So if you look at it on a net asset value per
share basis, which you would do with a holding company that
effectively more than doubles what the net asset value per share
is. So this is something that we think is worth at least 850
euro.

RUHLE: Let's just back it up. Let's just slow this down.

BLOCK: Sure.

RUHLE: It's a holding company.

BLOCK: Correct.

RUHLE: How exactly do you unlock the value here?

SCHATZKER: How about we spell it first for everybody?

RUHLE: Okay.

BLOCK: Sure.

SCHATZKER: Bollore.

BLOCK: Yes.

RUHLE: Bollore.

SCHATZKER: And it's run by a French billionaire.

BLOCK: Yes, Vincent Bollore, who actually has -- he's known as
the Carl Icahn of France. And then Europe has a reputation for
not having activist investors. I mean this has been throwing very
sharp elbows for about three decades. I mean he has tussled with
Lazard. He is on the board of Vivendi now. So he's actually a
very impressive investor. He's grown….

RUHLE: How did you find him? How did you find this deal?

BLOCK: So we got contacted by an investor who said we know you
like opaque things, complexity. This is one that's really
interesting. And to us it's a no-brainer. I mean I love this as
much as I love the short theses that we've published because it's
not where we are sitting here like most long investments or
investors would do and saying, well what's going to happen in the
future? We are looking at right now. We're saying this is
something where the per-share value is substantially higher than
it appears to be.

SCHATZKER: So hang on one second. It's -- I wouldn't say it's
easy to call out a fraud, but once you've identified a fraud,
once you believe a company is a zero, or a doughnut or however
you prefer to term it, you should feel conviction, right?

BLOCK: Yes.

SCHATZKER: There's no business
there, so I'm happy calling it a short, saying sell this stock.
Does it feel harder in any way to call out a long? Do you feel as
convinced about Bollore as a long as you did about say
Sino-Forest as a short?

BLOCK: Yes, and here's why. Because generally speaking our
research approach we're looking backwards. So we're looking at
information that companies have disclosed. And when you….

RUHLE: They're bigger.

BLOCK: Right. And we're asking is this information reflective of
economic reality. Now we're usually doing from the short side
because we are trying to find areas in which the company is
misleading investors or lying. In this case we are looking at the
historical numbers here, shares outstanding, and we're saying
there's a problem here. This is not reflective of economic
reality. The share count is much too high when you take into
account how Bollore owns subs that own holding companies that own
Bollore.

RUHLE: All right, but hold on. You want to talk economic reality?
This company is smack dab in the center of Europe, which is an
absolute garbage storm.

BLOCK: Well maybe even worse, but I have a rebuttal for this.
Most of the value, so about eight point, according to our
valuation, about EUR8.3 billion is related to its transportation
and logistics business. The vast majority of that is owning and
operating ports, yes or sorry, operating ports in Africa. Now,
yes, I do not like emerging market investments in most cases. I'm
very critical of them.

This is a business in Africa that he's been building for 30
years. It's kind of a boring business. The economics are great.
The EBITDA margins look to be about 40 percent. And there are
very, very high barriers to entry and competition. So it's not --
there isn't this massive blue sky story associated with their
logistics business in Africa, which is something we like. It's
just it's a very steady, good business.

SCHATZKER: What's the motive? Here's one thing I always want to
know. What's the motivation?

RUHLE: Hold on, a steady and good business in West Africa, sounds
like an oxymoron.

SCHATZKER: No.

RUHLE: Yes.

SCHATZKER: There are -- well maybe, but there are lots -- there
have to be lots of good businesses. It's still a growing
economy.

BLOCK: I mean it's moving (inaudible) around the world.

RUHLE: All right. Well we've got to know what the stock
is.

SCHATZKER: Hang on one second. You say it is worth eight euros a
share?

BLOCK: Yes, 8.50.

SCHATZKER: Okay. So right now it's at EUR4.53, roughly, and but
it was worth less than that before we started
talking.

RUHLE: Hold on, right here. Look at this. Look at the spike.
Since we started this interview, the stock is up over three
percent. When Carson Block speaks, people listen.

SCHATZKER: Can we -- I want to go back to this point about
motivation. In whose interest is it to make -- in whose interest
is obfuscation? How does Vincent Bollore, for example, benefit
from this convoluted corporate structure which, as you explain,
obscures really the true number of shares outstanding, or at
least the economic value to the common shareholder?

BLOCK: Okay. You are asking a very interesting question, and
because I've never met Mr. Bollore I can't -- I can't really
answer it. I can only speculate that perhaps, and again I don't
know, this might have to do with allowing him to over time
increase his share of ownership while not triggering tax
liability, perhaps.

RUHLE: Why haven't you met him, when you did all of your work and
decided to get involved, why wouldn't you request a meeting with
him?

BLOCK: Well it's actually very rare that we openly speak to
managements of companies that we are working on.

RUHLE: Yes, but that's because you are usually going after them.

BLOCK: Right.

RUHLE: And the last thing they would want to do is meet with a
guy who thinks they're a complete fraud. In this case, why
wouldn't you want to meet him?

BLOCK: Well because I don't want to approach a company, and by
the same token, and say, hey, I think that we're -- I'm
interested in going long on you, now show me all the really nice
stuff about your company that you can. I think that's the problem
that a lot of investors have when they do look at companies from
the long side is they're really they're seeing what the company
wants them to see.

So I like this approach of doing the research from a distance.
Maybe someday I will meet him. Maybe someday I'll ask him the
question you just asked. I don't know whether I'll get the true
answer, but yes, but we find it is most effective to research
companies from a distance. That way they cannot attempt to affect
your perspective.

RUHLE: All right. So you compare him to the Carl Icahn of Europe.
I'm looking through my notes and I'm reading that Bollore plans
to retire in 2022. That's not that far off. What happens when he
leaves? It's like when Carl goes away, when Bill Ackman goes
away, what's left?

BLOCK: Yes. Well there's a lot of value in that structure with
this -- so recently Bollore tendered for media company, Havas.
And it's been exchanging shares of Bollore for Havas. And this
has actually had the effect of simplifying a little bit this
corporate structure, and doing it in a way where there are really
minimal adverse tax consequences.

So if you look at it from that perspective it's a very smart
move, and it might be first step along the road to simplifying
the structure. So what does it ultimately become? He has a son
who is running Havas right now. Maybe -- maybe the children run
the business, and it's a media business, maybe it distributes
assets. That remains to be seen.

SCHATZKER: So Vincent Bollore himself has been something of an
activist.

BLOCK: (Inaudible).

SCHATZKER: How he earned that sobriquet, right, the Carl Icahn of
Europe. Does Bollore need an activist? You're calling out the
fact that there's hidden economic value here. You're effectively
being a value investor, right?

BLOCK: Yes.

SCHATZKER: But does so many value opportunities require, it seems
these days, or at least attract activists to help unlock that
value faster? Would you welcome activist investors to feast on
Bollore as a same kind of opportunity?

BLOCK: Well the difference here
is that with the capital that Bollore, that Vincent Bollore
retains in the structure, he actually allocates it very well.
Over the long term, over the past 20 years he's compounded the
price of the stock by 16 percent on an annual basis. Book value
has grown by about 13 percent on an annual basis. These are very
good numbers, so actually I'm happy to be along for the ride with
Bollore for some time.

RUHLE: All right. We've covered Bollore. We've got to ask before
you leave, NQ. Give us an update

BLOCK: Okay. Well that company --

RUHLE: Hate them, still hate
them, yes?

BLOCK: -- still exists anymore?

SCHATZKER: It does still exist. It's only down 85 percent since
you called it out.

RUHLE: Only, only.

BLOCK: Okay. So let's see. We've had PWC wouldn't sign off on the
account, so they replaced it with a boiler room auditor.
Chairwoman of the audit committee resigned. Two other board
members resigned. Yes, I mean just about everything that could go
wrong -- CFO resigned. (Inaudible) has.

SCHATZKER: Here's another question that you have to ask yourself.
Why would anyone at this point be in NQ Mobile's
camp?

BLOCK: I mean if you -- pure speculation. I….

SCHATZKER: But don't you wonder, I mean if you truly believe that
the stock is a zero and it's still trading as if there is some
economic value left, don't you ask yourself that question?

RUHLE: Yes. Doesn't Bill Ackman ask himself the question? He's
laid out every single point of why it Herbalife should be worth
zero and there are still guys in that trade.

BLOCK: Yes, look, there will always be investors who want to
believe the blue sky story. And if you believe the company's
numbers, NQ looks incredibly cheap, but look -- it's -- you've
got -- there will always be people holding the bag. So those who
are long in NQ right now, have been long, are holding a bag and
the contents are not very desirable.

RUHLE: You almost have a sinister smile on like, he's like
somebody is always holding the bag.

BLOCK: No way.

RUHLE: I'm glad it's not me.

SCHATZKER: Hang on. He went from I love everything to somebody is
always holding the bag.

RUHLE: Yes, maybe not.

SCHATZKER: You know what? Before we leave let's just have a look
at the stock price, Bollore. It is the company that Carson Block
for the first time, at least ever publicly, is going long on and
an immediate market reaction, we are going to be following this
one closely. You see….

RUHLE: Moving markets on "Market Makers." Thanks to you, Carson,
we are living up to our name today.